Interest rates, average prices push affordability downward

Less than 32 per cent of Vancouverites can afford to purchase a home in the city

By Tracy Sherlock, Vancouver SunMay 9, 2013

The past three months have seen a slight decline in affordability in Metro Vancouver, due to a slight rise in interest rates and in average prices, statistical analysis provided to The Vancouver Sun shows.

While the Bank of Canada has not raised interest rates, several banks have increased their advertised rates, which are the rates used by Urban Analytics, which provides the data for the UDI/FortisBC Housing Affordability Index. The index is updated and released quarterly by The Vancouver Sun.

While less than 32 per cent of people living in the city of Vancouver can afford to buy a home there, in suburbs surrounding Vancouver more than half of the population can afford to buy some form of home, the numbers show.

The index defines “affordable” as the percentage of households living in a region who would qualify for the mortgage required to own the property. Typically, a bank wants to see no more than 32 per cent of income going to housing before it provides a person with a mortgage.

The change in affordability numbers was triggered by a very modest increase in the banks advertised five-year rates. The average rate of eight banks used in the index was 3.61 in January and 4.13 in April.

When the numbers are broken down, they show that the advertised rate at RBC and TD Bank increased from 3.29 per cent to 5.14 per cent. There has been a one-per-cent advertised rate hike at Scotiabank, while BMO, Coast Capital Savings and ING Direct stayed the same, the Urban Analytics numbers show.

These increases, coupled with slight increases in prices of re-sale properties have combined for a decrease in affordability throughout the region, ranging from very slight changes to more than 10 per cent fewer people being able to afford a property in one region.

In Vancouver proper, which is known for its high housing prices, fewer than 32 per cent of people can afford payments on a single-family home, a new or resale townhouse or a new concrete condominium, the UDI/FortisBC Housing Affordability Index shows.

The numbers are a bit more encouraging for other types of housing: 33.3 per cent of households earn the $68,219 required to make the payments on a new wood-frame condominium, 34.7 per cent of households make the $66,132 needed for a resale concrete condo, and 41.4 per cent make the $57,285 required for a $395,000 resale wood-frame condo. Each of these numbers is down slightly from last quarter.

For Inner Metro, the percentage of people who could afford to buy dropped for resales of all property types because the area showed an increase in average prices. As an example, the average selling price of a townhome in Inner Metro increased from $437,000 in December to $478,000 in March. This increase means a home that could previously be afforded by someone earning $52,045 would now require an income of at least $60,657 to be considered affordable. In our first report of the affordability index, 55.3 per cent of the population in Inner Metro could afford to buy such a home, now the percentage is just 48.1.

The index found that while 58.7 per cent of working households in Inner Metro can afford a resale wood-frame condo, just 48.5 per cent of working households can afford a new concrete condo. For single-family homes in inner Metro, less than 40.9 per cent of households could afford to make the mortgage payments.

In Outer Metro, the index shows that 61.1 per cent of working households in Outer Metro earn the $48,680 annual salary required to buy the average new wood-frame, 838-square-foot condominium, while 47.2 per cent are above the required income of $61,816 to buy a similar condo in Inner Metro, and less than 32 per cent earn the required $82,672 to afford a similar type of condominium in Vancouver proper. For resales, the percentages were higher: 73.3 in outer Metro, 48.6 in inner Metro and less than 32 in Vancouver proper.

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